The Indian rupee weakened by 41 paise to 95.77 against the US dollar in early trade on Wednesday, pressured by a proposed US tariff action against India and rising geopolitical tension in West Asia.
The decline came on the first day of the Reserve Bank of India’s three-day Monetary Policy Committee (MPC) meeting. The Rupee had touched an all time low of 96.96 against US dollar on May 20. However, it had been recovering since due to RBI interference. However, the currency again started falling yesterday.
On Tuesday, June 2, the rupee had settled 17 paise lower at 95.36 to the dollar. At the interbank foreign exchange market, the rupee opened at 95.43 against the US dollar and slipped further to 95.77 in early trade.
USTR proposal weighs on sentiment
According to PTI, investor sentiment turned cautious after the US Trade Representative (USTR) proposed an additional 12.5% duty on imports from 54 countries, including India, over alleged failures to prohibit imports of goods produced with forced labour.
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The move follows investigations launched against 60 countries over what the USTR described as inadequate enforcement of bans on imports linked to forced labour.
India has rejected the allegations and urged the US to end the investigations, according to PTI. The government has argued that such issues should be addressed within the framework of ongoing bilateral trade negotiations.
Focus shifts to RBI MPC decision
Market participants and economists are now turning their attention to the RBI’s policy decision on June 5, with inflation, growth and the rupee remaining key areas of focus.
Nomura expects the RBI to announce non-monetary measures to curb speculation and limit further rupee depreciation instead of raising the repo rate.
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According to Nomura, raising interest rates is not an effective way to stabilise the currency.
The report pointed to the 2013 taper tantrum episode, when the RBI raised rates but failed to significantly strengthen the rupee. Instead, measures aimed at attracting foreign currency inflows proved more effective.
“Interest rate defence of currency is not advisable,” Nomura said.
RBI could tighten capital flow rules to curb rupee volatility: Nomura
The brokerage added that aggressive rate hikes could hurt economic growth and potentially trigger more capital outflows rather than support the currency.
Nomura expects the RBI to use administrative and macroprudential measures to contain rupee volatility and curb speculation.
These could include lowering outward remittance limits, relaxing external commercial borrowing (ECB) norms, tightening overseas direct investment (ODI) controls, shortening exporter repatriation timelines and changing importer hedging requirements.
Nomura also said that any announcement of a diaspora bond, similar to the measures adopted in 2013, would be viewed positively by markets.
RBI may lift FY27 inflation forecast
Brent crude oil futures are hovering around $97.68 per barrel, posing a key risk to inflation. Nomura expects the RBI to raise its FY27 CPI inflation forecast to 4.9% from 4.6% earlier. Nomura highlighted that petrol, diesel and CNG price hikes could directly add around 50 basis points to headline inflation, although the extent of broader price spillovers remains uncertain.
TOPICSFalling Rupee ValueRBIRBI Monetary Policy ReviewrupeeRupee vs us dollar + 0 MoreThis article was first uploaded on June three, twenty twenty-six, at nineteen minutes past two in the afternoon. © IE Online Media Services (P) Ltd